2020 (2) TMI 1009 - AT - Customs

Imposition of penalty u/s 114AA of Customs Act, 1962 on appellant-CHA - import of some unbranded goods in the name of branded goods - Drugs and cosmetics (4th Amendment) Rules, 2010 were already in existence - requirement of mandatory registration of the cosmetic goods to be imported not complied with - HELD THAT - Section 114AA mandates imposition of penalty where any person who in relation to any goods knowingly or intentionally does any of such act as mentioned in the above provision that he shall be liable to the penalty. Thus it becomes clear that to confirm the penalty under this provision there must be ample evidence about the knowledge and intention of the person who is concerned with the import of goods. Further perusal of his findings revealed that there is no such check conducted by Commissioner (Appeals). No such evidence is otherwise apparent from the record to prove that the CHA had ulterior motive of tax evasion or to falsify his voluntary statement about simple unawareness towards the mandate of registration certificate while importing the cosmetics. Accordingly, the findings of Commissioner (Appeals) that the CHA did not make even the minimum efforts to ensure the veracity of the submissions made to the department is not sufficient to hold that the said failure was intentional and that the CHA had the mensrea to facilitate the importer in his wrong act of not obtaining the certificate as mandated under Cosmetics Rules, 2010. The allegations against the appellants are mainly concerned with failure to discharge their duties and responsibilities mandated under various Regulations for dealing with goods in legalized manner. However, apparently, there is no material evidence available on records to prove that the appellants intentionally encouraged and supported the wrong doer i.e. the importer in doing the wrongful act of attempting to export the branded cosmetic goods in violation of Cosmetic Rules, 2010. Section 114A of the Act is applicable only when there is sufficient evidence about prior knowledge of wrong doing or existence of deliberated intend (malafide). It also provides for imposition of penalty for furnishing incorrect or false declarations and that such declaration should also be intentional with prior knowledge. The appellant since was unaware of the mandatory registration while importing branded cosmetics, as required by the Cosmetic Rules, 2010 being very recent in time. The malafide intent cannot be attributed to him - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of penalty under Section 114AA of Customs Act, 1962 against the Custom House agent for failure to comply with the mandatory registration requirement of the Cosmetic Rules, 2010 while importing branded cosmetics.

Analysis:

1. Issue of Penalty under Section 114AA:
The appellant, a Custom House agent (CHA), filed a bill of entry for home clearance of unbranded cosmetics on behalf of an importer. The department found branded cosmetics along with unbranded ones, leading to a show cause notice proposing a penalty under Section 114 of the Customs Act, 1962. The penalty was confirmed under Section 114AA by the Order-in-Appeal, which the appellant contested. The key contention was the appellant's alleged failure to produce the mandatory license as per the Drugs and Cosmetics (4th Amendment) Rules, 2010. The appellant argued lack of knowledge about the rules and absence of mens rea for intentional wrongdoing.

2. Interpretation of Section 114AA:
Section 114AA mandates a penalty for knowingly or intentionally making false or incorrect declarations in business transactions under the Customs Act. To impose a penalty under this provision, evidence of the person's knowledge and intention related to the goods in question is crucial. In this case, the appellant's lack of awareness about the mandatory registration requirement due to recent applicability of the rules was highlighted. The absence of evidence regarding the appellant's intentional wrongdoing or ulterior motive for tax evasion was emphasized.

3. Commissioner's Observations and Findings:
The Commissioner (Appeals) acknowledged the appellant's voluntary statement about being unaware of the registration requirement while importing branded cosmetics. It was noted that the appellant filed entries based on documents received from the importer without verifying the need for a license. The Commissioner's findings lacked evidence of intentional non-compliance or ulterior motive on the appellant's part. The absence of proof of deliberate intent or malafide actions by the appellant was a crucial factor in assessing the penalty under Section 114AA.

4. Decision and Rationale:
The Tribunal held that the appellant's lack of knowledge about the recent rule change absolved him of malafide intent. The burden of proof was on the Revenue, and there was no concrete evidence to suggest intentional wrongdoing by the appellant. The Tribunal set aside the penalty imposed by the Commissioner (Appeals) under Section 114AA, emphasizing the need for sufficient evidence of prior knowledge or deliberate intent for penalties under the Customs Act. The decision highlighted the importance of proving intentional false declarations with malafide intent before imposing penalties.

In conclusion, the judgment focused on the necessity of establishing knowledge and intentional wrongdoing to impose penalties under Section 114AA of the Customs Act, highlighting the significance of evidence in determining liability for non-compliance with regulatory requirements.